Thursday, April 23, 2009

Mellon "Loss" & the Market (Report)

NEW YORK (AP) — Bank of New York Mellon Corp. said Tuesday that its first-quarter profit dropped an unexpectedly steep 57 percent and that it was slashing its dividend in hopes of repaying a government investment.

Its shares fell more than 5 percent in premarket trading.

The New York-based bank cut its dividend to nine cents a share from 24 cents. BNY Mellon said it hopes to use some of the capital it saves from the dividend cut to pay back a $3 billion investment from the government. It said the dividend cut will save $700 million a year.

BNY Mellon was among an initial group of banks to receive aid from the government late last year as part of a $700 billion financial bailout plan. Several of them, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., have expressed a desire to return the funds as soon as possible.

Banks that have received federal bailout funds have become subject to greater government scrutiny and limits on executive pay.

The report from Bank of New York Mellon also underscored the trouble still pervading the financial sector.

Several big banks, including Goldman Sachs, JPMorgan Chase and Bank of America Corp., have recently reported profits that have exceeded analysts' expectations. But many have attributed the recent improvement in results to a spike in mortgage banking and trading activity — trends that aren't expected to last. And credit losses keep rising as consumers and businesses struggle to pay off their debt.

BNY Mellon is a commercial bank which largely caters to institutions, corporations and wealthy individuals.

While its business differs from that of its retail bank counterparts, it is not immune to market challenges. Investment losses and goodwill write-downs cut into its earnings by 21 cents per share. And declining interest rates, lower market values and a drop in client volumes hurt revenue.

After paying preferred dividends, BNY Mellon earned $322 million, or 28 cents per share, for the January-March period. That's less than half the $746 million, or 65 cents per share, it earned a year ago.

Income from continuing operations excluding merger and integration costs, restructuring charges, investment write-downs and other nonrecurring items, was $676 million, or 59 cents per share.

Wall Street analysts had been expecting earnings of 63 cents per share. Analysts typically exclude one-time items from their estimates.

Shares dropped $1.43, or 5.1 percent, to $26.60 in premarket trading.

Losses on the bank's securities portfolio totaled $295 million, up from $73 million in the first quarter of last year, but down significantly from a loss of $1.24 billion in the fourth quarter.

Total revenue was $2.93 billion, down from $3.75 billion a year ago. Analysts had forecast revenue of $3.66 billion.

Net interest revenue, or the amount earned on loans and deposits, totaled $792 million, up slightly from $767 million in the first quarter of last year.

Fee and other revenue fell 28 percent to $2.14 billion, reflecting declines in securities servicing and asset and wealth management fees. This was partly offset by a 19 percent increase in foreign exchange and other trading revenue.

Total assets under management were $881 billion at the end of the quarter, down 20 percent from a year ago.

Investors sent financial shares sharply lower on Monday following six weeks of massive gains that have seen some bank stocks double or triple in value.

But after such a huge advance, and with credit problems still lingering, investors are worried that the market may have gotten ahead of itself.

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